PENSIONS AGREEMENT BETWEEN ROYAL MAIL & CWU - January 2014

PENSIONS
AGREEMENT
BETWEEN
ROYAL MAIL
& CWU

             January 2014

DATED                      December 2013

           ROYAL MAIL GROUP LIMITED

                    - and –

       COMMUNICATION WORKERS UNION

_______________________________________________

             PENSIONS AGREEMENT

_______________________________________________

Date:                                                                  December 2013

INTRODUCTION

The purpose of this legally binding agreement is to safeguard the future of the Royal Mail
Pension Plan and improve the Royal Mail Defined Contribution Plan.

Parties:

(1) ROYAL MAIL GROUP LIMITED (company number 04138203) whose registered office
    is at 100 Victoria Embankment, London EC4Y 0HQ) (the “Company”); and

(2) COMMUNICATION WORKERS UNION, a trade union within the meaning of section 1
    of the Trade Union and Labour Relations (Consolidation) Act 1992, whose head office is
    at 150 the Broadway London SW19 1RX (the “Union”).

BACKGROUND

A. Both parties agree that the pension benefit represents a key element of the reward
   package for employees, whichever plan they belong to, and that the future of that
   benefit can best be maintained through the terms of this legally binding Agreement and
   by the Company and the Union jointly developing future pension strategy. They
   acknowledge that pension arrangements are long term by their nature and that
   employees need stability and certainty about their pension benefits.

B. Both parties recognise that the Royal Mail Defined Contribution Plan (the “RMDCP”) has
   become increasingly important as its membership has grown. From starting in 2008 it
   now has over 35,000 contributing members and it is important that their position be
   reviewed and improved as part of this Agreement.

C. Following the actuarial valuation showing the condition of the Royal Mail Pension Plan
   (the “RMPP”) as at 31 March 2012, the Company made proposals to change the
   benefits that the RMPP provides and to increase contributions by the Company to the
   RMDCP. Following consultation with members of the RMPP and the Union, the
   Company and the Union have reached an agreement on the terms set out below.

D. The Company and the Union enter this Agreement on the basis that it is a legally
   enforceable contract between the Company and the Union. Accordingly the statutory
   presumption referred to in section 179 of the Trade Union and Labour Relations
   (Consolidation) Act 1992 will not apply.

E. The parties note that the changes to RMPP set out below have taken effect by
   amendments to the trust deed and rules that govern that plan. The changes to RMDCP
   must be made by deed executed by the Company. By executing this Agreement the
   Company undertakes to make amendments which incorporate the effect of this
   Agreement in the RMDCP Rules.

SCOPE

1.   The Agreement below sets out:

     1.1   A revised pension arrangement which represents a significant improvement to
           the proposal on which the Company originally consulted members of the
           RMPP, which retains the final salary link for members who move within the two
           Union’s represented grade bandings and provides confidence in the future of
           pension accrual in the RMPP;

     1.2   An ongoing legally binding commitment to keep RMPP open with no increase in
           the contribution rate for members of the RMPP, or their normal retirement age
           or any change to accrual rates. This will be reviewed from time to time in
           accordance with Clauses 4 and 5 of this Agreement;

     1.3   Improvements to the rate at which the Company contributes to the RMDCP,
           increasing the contribution rate from the Company at all levels and removal of
           the lowest level of contribution (subject to consultation with RMDCP members);

     1.4   New arrangements for the involvement of the Union in the governance of
           pensions policy; and

     1.5   New arrangements for the Union's involvement in the election of two member
           nominated trustees for the RMDCP.

THE RMPP: AGREED CHANGES.

2.   Both parties note that the rules of the RMPP have been amended to the effect that
     from 1 April 2014:

     2.1    Members’ basic pensionable pay (after the deduction of the LED for Section C
            members) will increase by the higher of RPI (up to 5%) each year, or any
            promotion or increment that is a greater amount within members’ current pay
            grade group as at 31 March 2014.

     2.2    The current pay grades of CWU represented members will be combined into
            two groups for pension purposes as follows:

            Group 1: Postal, Administration and Fleet
            Group 2: Engineering

            Promotions and subsequent increments while members stay within their pay
            grade group would continue to flow through into Final Salary pensionable pay
            as they do now, until the end of the Company’s next pension review on 31
            March 2018.

     2.3    Promotions and increments will continue to flow through into members’ CSDB
            pensionable pay as they do now, until the end of the Company’s next pension
            review on 31 March 2018.

THE RMPP: COMPANY COMMITMENT

3.   The Company will not make proposals to the Trustee of the RMPP, other than
     changes necessary to comply with regulatory or legislative requirements, which
     would have the effect of:

     3.1   Closing the RMPP to future accrual.

     3.2   Increasing the contributions payable by RMPP members;

     3.3   Changing the basis on which members of the RMPP may continue to accrue
           benefits under the RMPP; or

     3.4   Changing the normal retirement age at which benefits under the RMPP are
           payable.

4.   The commitments made by the Company under Clause 3 are ongoing, and will be
     jointly reviewed by the Company and the Union as follows:

     4.1   The first planned periodic review will conclude by 31 March 2018;

     4.2   On a periodic basis thereafter that is intended to coincide with the subsequent
           triennial valuations, or other valuations called by the Trustee of the RMPP or
           other events that adversely impact on the affordability of the RMPP;

     4.3   Before 31 March 2018 in the following exceptional circumstances:

           -­‐   4.3.1 The Company contribution rate exceeds the current level of 17.1%
                 and any valuation carried out by the Trustee of the RMPP requires
                 additional Company contributions of more than £50m per annum; or

           -­‐   4.3.2 The Company forecasts it cannot remain a going concern; or

           -­‐   4.3.3 Factors outside the Company’s control cause a material adverse
                 impact on the RMPP or how the RMPP must be recognised within the
                 Company’s financial statements, (such as significant changes to the law or
                 international accounting standards).

     The scope for continuation of the arrangements under Clause 2.2 and Clause 2.3 will
     also be considered at the first planned periodic review or any other review under this
     Agreement.

5.   The purpose of a review under Clause 4 will be to consider all reasonable steps to
     maintain the commitments made within the terms of this Agreement having regard to
     the overall financial situation of the Company. The Union will participate fully during
     the process of any review. For the avoidance of doubt:

5.1   It is not the intention of the parties that the outcome of a review will necessarily
           lead to a change to any of the commitments made by the Company under
           Clause 3;

     5.2   Following any review, (which should consider all options for keeping the RMPP
           open and take full account of the overall situation within the Company), if the
           Company believes it cannot maintain any or all of its commitments under
           Clause 3, or the arrangements under Clause 2.2 and Clause 2.3, the Company
           can terminate any or all of its commitments or those arrangements on three
           months’ notice to the Union;

     5.3   In the event that notice is served by the Company under Clause 5.2, this would
           (without changing the effect of the notice) trigger further national talks with the
           Union.

     5.4   The Union’s participation in a review will not commit the Union to agree to any
           proposal to amend the Company’s pension arrangements;

     5.5   The parties recognise that any proposal to amend the trusts of the RMPP or the
           Rules will require the consent of the Trustee of the RMPP, and the execution of
           this Agreement does not commit the Trustee of the RMPP to agree to any
           proposal that is made after a review; and

     5.6   The Company and Union accept that following any review the contribution rate
           that is affordable could be higher than the current contribution rate of 17.1%,
           but the actual contribution rate that is affordable at any point in the future will
           take full account of the Company’s financial position at that time.

RMDCP: COMPANY CONTRIBUTIONS

6.   The rules of the RMDCP will be amended, with effect from 1 June 2014, to provide
     for contributions payable by members of the RMDCP and by the Company for their
     benefit as follows:

     6.1   The contributions payable during the first year of an employee’s membership of
           the RMDCP remain unaltered by this Agreement;

     6.2   Thereafter:

           6.2.1    If a member pays 4% of his or her pensionable pay as a pension
                    contribution the Company will pay 7%;

           6.2.2    If a member pays 5% of his or her pensionable pay as a pension
                    contribution the Company will pay 8%; and

           6.2.3    If a member pays 6% of his or her pensionable pay as a pension
                    contribution the Company will pay 9%.

7    The rules of the RMDCP will also be amended, with effect from 1 June 2014, to
     provide that the default rate payable by members of the RMDCP and by the

Company for their benefit, unless he or she chooses to pay contributions at a
     different rate, will be:

           7.1.1    for employees who join the Company before 1 April 2014, the member
                    will pay 4% of his or her pensionable pay as a pension contribution
                    and the Company will pay 7%; and

           7.1.2    for employees who join the Company on and after 1 April 2014, the
                    member will pay 5% of his or her pensionable pay as a pension
                    contribution and the Company will pay 8%.

     For the avoidance of doubt, the contribution rates set out at Clause 7.1.1 and Clause
     7.1.2 above will apply on and from the member’s 12 month anniversary of joining
     service date.

NEW PENSION GOVERNANCE ARRANGEMENTS

8.   It is recognised that pension arrangements are complex and that the best way to
     safeguard the future of the RMPP and develop the RMDCP, is by the Company and
     the Union working together through the introduction of new pension governance
     arrangements. This will be achieved by the Union being invited to join the Royal Mail
     Pensions Policy Committee. The terms of reference of this committee are below:

     The Pensions Policy Committee consists of:

              •    Chief Finance Officer (Chair)
              •    HR Director
              •    Company Secretary
              •    Two CWU Nominees
              •    Unite/CMA Nominee

     The Pensions Policy Committee will meet quarterly and is quorate when three
     members are present.

     Notice of meetings will be provided in advance and all reasonable efforts will be
     made to organise the time and location of meetings so that all members of the
     Pensions Policy Committee can attend.

9.   The functions of the Pension Policy Committee will be:

     9.1   to consider any amendment to the Rules of the Royal Mail pension
           arrangements proposed by the Trustees or the Company and to make
           recommendations to the Pension Committee of the Royal Mail Board;

     9.2   to develop proposals for pensions policy in respect of the Royal Mail pension
           arrangements, and make recommendations to the Pension Committee of the
           Royal Mail Board;

     9.3   to review the performance of the RMPP regarding funding, investment and
           administration;

9.4   to meet regularly with the Trustee Executive team to receive reports on the
            activities of the RMPP and RMDCP;

      9.5   to review and discuss the Trustee’s proposed investment strategy and provide
            recommendations to the Pension Committee of the Royal Mail Board;

      9.6   to review and discuss the Trustee’s proposed valuation assumptions and
            provide recommendations to the Pension Committee of the Royal Mail Board;
            and

      9.7   to review and discuss any major policy, regulatory, legislative or accounting
            reporting changes which may impact on the Company and make
            recommendations to the Trustee and the Company as appropriate.

GOVERNANCE: RMDCP MEMBER NOMINATED TRUSTEES

10.   The Company will request the Trustees of the RMDCP to change the current
      arrangements for the selection of member nominated trustees to enable the Union to
      participate in the selection. The following process will apply for the two member
      nominated trustees selected by active members of the RMDCP employed in Union-
      represented grades, irrespective of Union membership.

      10.1 Nominations will open following the publication of a letter by the Union issued
           to all Union branches in the Company. Similar announcements will be issued
           by the Company and Post Office Limited to all the members that they employ
           and in Courier – the RMG staff newspaper.

      10.2 the Trustees will send to any eligible individuals wishing to be nominated an
           information pack containing a summary of the role of a trustee, any additional
           requirements expected of them as a trustee of the RMDCP, the RMDCP’s
           latest annual report and accounts and the Pensions Regulator’s Guidance for
           Trustees.

      10.3 In order to be eligible for nomination, an individual must be a member of the
           RMDCP aged at least 18 who has completed a minimum of twelve months’
           Company service, or be a former member of the RMDCP who is currently
           employed by the Union. An individual is not eligible for nomination if he or she
           is disqualified by law from holding the position of trustee.

      10.4 Nominees must complete a declaration of eligibility and personal statement of
           up to 200 words which will be included with the ballot information. Completed
           nomination forms and any personal statement will be sent to the Union’s
           headquarters.

      10.5 Following closure of the nomination period, candidates will be required to
           attend a pre-election familiarisation session run by the Trustees, after which
           they will be invited to confirm their candidature.

      10.6 Unless there are no more nominees than there are vacancies, the nominees to
           be appointed as a member nominated trustee will be selected by ballot. The

ballot will be conducted by an independent organisation who will issue ballot
            papers with candidates’ personal statements to those eligible to vote (that is,
            active members of the RMDCP employed in Union-represented grades,
            irrespective of Union membership).

      10.7 The two nominees who receive the most votes in the ballot will be selected as
           the Union member nominated trustees. If a member nominated trustee resigns
           or leaves office within 12 months of the last day of voting after a ballot as
           described in Clause 10.6, the nominee with the next greatest number of votes
           will be selected as a replacement member nominated trustee for the balance of
           the remaining term of office.

      10.8 All member nominated trustees will be required to sign and adhere to the
           requirements of the trustee confidentiality agreements and the conflicts of
           interests policy.

11.   After serving an initial term of office, the Trustees will ask the Union whether it wishes
      to put forward the same individuals for re-selection. If the Union does, the Trustees
      will select those individuals for a further three-year term as a member nominated
      trustee.

12.   After the expiry of a second period of office, the full nomination/selection process
      must be followed.

FINAL PROVISIONS

13.   Any agreement already made by the Company and the Union may be used as an aid
      to the interpretation of this Agreement, but where they are inconsistent with this
      Agreement, the terms of this Agreement will prevail. No existing agreement is itself
      intended to constitute a legally binding contract between the Company and the
      Union, unless and until it is amended on terms that state that it is.

14.   This Agreement does not form part of the contract of any employee of the Company.

15.   The parties do not intend that any term of this Agreement will be enforceable under
      the Contracts (Rights of Third Parties) Act 1999 by any person other than the parties.

16.   Any industrial action by the Union on pension related issues would allow the
      Company to terminate this Agreement immediately without notice.

17.   This Agreement may be terminated by the Union or the Company on three months’
      notice in writing served on the other party at the registered office or head office as the
      case may be. Subject to Clause 16, notice may not be served by the Union or the
      Company for a period of five years from the date of this Agreement.

18.   This Agreement shall be governed by, construed and take effect in accordance with
      English law.

19.    The courts of England shall have exclusive jurisdiction to settle any claim,
       counterclaim, dispute or difference which may arise out of or in connection with this
       Agreement or the legal relationships established by this Agreement.

SIGNED by the parties on ____________________ December 2013:

__________________________________
Jon Millidge, Company Secretary
Authorised to sign on behalf of Royal Mail Group Limited

__________________________________
Dave Ward, Deputy General Secretary
Authorised to sign on behalf of the Communication Workers Union

CWU
150 The Broadway
Wimbledon
London
SW19 1RX
   020 8971 7200

04275 Printed and published by the Communication Workers Union 2014